- - Friday, May 31, 2013

When setting up Medicare as a parallel “earned-benefits” program to Social Security in 1965, Congress tacked onto the legislation — like an insurance rider — a secondary provision to help existing state programs provide medical assistance to a very small population: America’s most helpless and destitute.

Dubbed Medicaid, the intended backup plan has instead mushroomed into the most costly and cumbersome “means-tested” welfare program and single most important driver of state spending and federal deficits, representing more than 25 percent of all U.S. health care expenditures.

Why President Obama placed this hastily and poorly designed program at the centerpiece of Obama-care remains a mystery. While the president’s goal of securing coverage for millions of uninsured Americans is worthy, expanding a dysfunctional system that needed a large-scale overhaul 15 years ago actually sets back the cause of health care reform.

Apparently, the president no longer thinks that the private-sector economy can generate well-paying jobs with good benefits for all working-age Americans and their families. Instead, his blind faith in Medicaid to save the day channels the fantasies of anti-growth Malthusians who do not want America to remain an exceptional nation.


Unlike Medicare, which is limited in scope and funded by payroll taxes and premiums, Medicaid is a fiscal and bureaucratic train wreck. Judging from my experience managing the system in two states for nearly 15 years, I can attest that Medicaid is a monstrosity that has exploded beyond actual need, covering more Americans than Medicare, and even more Americans living above the poverty line than below it. Moreover, its expanding caseload gobbles nearly a quarter of state budgets — more than a third in Missouri and Pennsylvania — crimping investments in education, research and infrastructure.

The Medicaid maze, especially its most costly components that serve the severely disabled and the infirm elderly, requires states to navigate and monitor myriad federal “waivers” regarding service delivery. These thousands of rules, service definitions and conflicting regulations yield operational chaos, cost escalation and a preoccupation with formal compliance with Uncle Sam, not better health outcomes for recipients.

Nor is Medicaid transparent. Most states rely upon middlemen in the form of managed care organizations that negotiate rates with hospitals and providers, meaning different rate structures for identical procedures and favoring the costliest options and providers, such as nursing homes, when less expensive community- and home-based options would suffice. Even for routine outpatient procedures, the system favors high-priced providers when a lower-cost provider with a lesser morbidity rate is nearby.

Had he invited governors to be stakeholders in developing his signature legislative achievement four years ago, Mr. Obama would understand why states have only reluctantly agreed to Medicaid expansion or are fighting it. Even now, the president should be looking for ways to work with, not demonize, innovative governors and grant them “global waivers” not only from Medicaid and Obamacare but also the entire welfare system. As the Good Book says, there is wisdom in a multitude of counselors.

For example, why did the president shut down the Healthy Indiana Plan, a Medicaid alternative that paired catastrophic insurance with a Personal Wellness and Responsibility health savings account for households with incomes up to 200 percent of the federal poverty level? Why not reverse that decision and allow the Hoosier State to expand this groundbreaking, cost-saving effort in lieu of expanding Medicaid?

Or why not give other states the same bargain that Rhode Island struck in 2009: a landmark redesign of its Medicaid program that exempted the state from federal micromanagement in exchange for a five-year spending cap that lowered projected Medicaid spending by billions of dollars? That culture-changing initiative transformed a sluggish bureaucracy into a performance-driven system that not only increased access and choice, but also improved care quality and outcomes — while saving taxpayers approximately $100 million.

The president should also encourage states to set up flexible and competitive welfare systems that incentivize middle-class norms, not greater dependency, so that more Americans can form stable families, join the workforce, and move up the economic ladder or, as the Medicaid law frames it, “achieve independence” and a chance at the American dream.

Without large-scale reforms, states will never get out from behind the fiscal eight ball or be able to repurpose funds for more popular uses — like infrastructure improvements, vocational training or tax relief to revitalize industry — that can enhance job prospects for all.

The president should recognize that there is more than one way to skin a cat, and that the top-down, one-size-fits-all bureaucratic model that the federal government has imposed upon the states since the advent of the Great Society, via Medicaid and now Obamacare, is unsustainable. To reboot his second term, Mr. Obama should take the bold step of reversing his wrong turn on the road to heath care reform and let the states function once again as the laboratories of democracy.

Gary D. Alexander served as the secretary for public welfare of the Commonwealth of Pennsylvania from 2011 to 2013.